WeWork has been in the news lately. From dominating the shared work space arena, to buying an iconic retail department store in New York that will serve as its new headquarters to subleasing massive spaces in order to become a landlord, the company is getting noticed inside and outside of the industry. Along with the cool atmosphere and branding of WeWork also come take-it or leave it terms that traditional tenants could find objectionable. As with many things in business, there are trade-offs. But awareness is your best defense against surprise.
As a tenant representative, I am often asked to perform a number of tasks for my clients, and in one particular case, I was also asked to review the terms of an agreement that WeWork presented to a client. Below is a summary of my feedback and comments (as a 30-year office leasing veteran) we wrote up for a CEO client about the WeWork Membership Agreement he was contemplating. The client shall remain anonymous for confidentiality purposes, but I would like to add that part of our analysis included engaging a real estate attorney, as well. The comments of this highly seasoned real estate lawyer are italicized.
First, our cover note to the CEO:
“Hi Travis (not real name):
Happy weekend. Just to let you know that we’ve reviewed the WeWork agreement in some detail on your behalf. It’s an interesting read and provides insight into this relatively new and huge organization. Let’s just start with this:
The agreement isn’t a lease. They’re very specific — and evasive — about not creating any sense of obligation or responsibility to you, your company and employees. And they can relocate you or “alter your office space” at any time. The vibe of the place and company is very cool. But I am concerned and doubtful that any savvy real estate counsel would agree to many of their onerous provisions (and WeWork probably wouldn’t accept wholesale changes).
This is not a comprehensive review, as would take place in conjunction with your company’s real estate counsel. Rather, this review and commentary is focused primarily on the business issues outlined in the Agreement. Comments follow their appearance in the Agreement, citing page and section names/numbers. The issues that I’m most concerned about are highlighted in bold.”
The Lingo, page 1:
- Important to distinguish between “Member” and “Primary Member.” Essentially, “Members” are all of your employees and contractors. “Primary Member,” at present, is YOU (whose title or job description does not appear in the Agreement).
- Note for privacy purposes, anyone who sees a copy of the Agreement will have access to all Member’s and Primary Member’s name, email address, phone number and date of birth.
ATTORNEY FEEDBACK: Only the “Primary Member” signs the WeWork Membership Agreement. If the Primary Member is an individual, say for example the CEO of the company that is entering into the Agreement with WeWork, he or she may be unwittingly assuming personal liability for any breach of the Agreement by the company or any Member (i.e. the company’s employees). While WeWork requires the Member to waive certain claims against WeWork and limits its liability to the Member to the amount of any fees paid by the Member to WeWork, the Primary Member is not given these same protections.
Terms and Conditions, page 2:
- “Services” include regular maintenance; furnishings, but only their furnishings are allowed; access to the WeWork business networking site, shared internet connection, limited use of printers/scanners/copies; conference rooms, HVAC during normal business hours, mail delivery and other incidentals.
- Virtually all services are restricted on some level, and premiums are to be paid by your company for use of Services beyond the standard contemplated by WeWork.
- “Our Reserved Rights:”
- “We reserve the right to move or alter your office space”. Clear enough, and definitely a serious concern.
- Without notice, WeWork can change or reduce their Services…or provide them by another party.
ATTORNEY FEEDBACK: The Agreement also grants WeWork the right to relocate or alter Member’s office space and to reduce the list of “Services” at any time without prior notice and without the Member’s approval. Usually in a lease, when a landlord has a similar relocation right, there are limitations, such as only being able to relocate the tenant one time during the term of the lease, or requiring relocation to comparable space, or requiring the landlord to pay for all of the costs of relocation. The WeWork Agreement does not include these protections. The Agreement does not provide for a reduction in the Membership Fees if WeWork reduces the “Services” or relocates the Member to smaller or inferior space.
Membership Fees and Other Financial Stuff, page 3:
- Confirming that there is no set-up fee.
- There is a $XX,000 “commitment fee,” which converts into a “security deposit” on the start date of the lease. Since WeWork has known your company for quite some time already, I question whether WeWork needs this much in security. WeWork presumably has enjoyed its track record of timely payments from your firm; you could use these funds for more productive purposes. The Agreement does not acknowledge receipt of the $XX,000.
- (d) Describes some of the Overage Fees, for excess conference room use, printer production. Once your group triples in size, it may become more challenging to control the overages.
- (g) Changes to Membership and Overage Fees will be annual. If your company is contemplating just a one-year stay at WeWork, this is moot.
ATTORNEY FEEDBACK: The Membership Fees are subject to annual increases, but the Agreement offers no guidance on the amount of such increases.
- (h) Outstanding Fees. WeWork can terminate the lease “…if you or any Member does not comply with the terms and conditions of this agreement.” This is an unusually restrictive and potentially debilitating provision — if any Member of your company has a bad day while at WeWork.
Term and Termination, page 4:
- The Agreement is effective now, on the assumption that your electronic signatures are binding; and your company has paid the commitment fee. However, each Member’s commitment to the Agreement runs with their own start date (remember that any single Member can blow the entire Agreement). What is NOT clear is the Term of the Agreement, nor an expiration date for the Agreement. The official start date is _________. It may be a month-to-month agreement, but the Agreement doesn’t state it clearly. This is unusual.
- Your company can give written notice to WeWork by (date) of its intent to cancel the Agreement, and receive a full refund. Your company loses 50 percent of its commitment fee for terminating less than 21 days prior to the start date.
ATTORNEY FEEDBACK: The duration (or term) of the Agreement extends from the Start Date until the Agreement is terminated by the Member or WeWork. A Member can terminate the Agreement after the Start Date only by giving WeWork the WeWork Exit Form, which must be filled out and signed by the Primary Member, whereupon the termination will be effective on the last business day of the month following the month in which the WeWork Exit Form is delivered. Prior to the Start Date, a Member can terminate the Agreement by giving written notice 21 days prior to the Start Date, in which case WeWork will refund the Commitment Fee to the Member. If less than 21 days’ notice is given, then only 50% of the Commitment Fee will be refunded. WeWork, on the other hand, retains the right to immediately terminate the Agreement at any time, for any reason or for no reason.
- (c) Office Space Not Timely Available. If WeWork cannot deliver the new space to you — at all, or on time — your sole remedy is to terminate the Agreement.
- (d) When you want to terminate the Agreement, your firm must use WeWork’s Exit Form to do so, effective on the last day of the month following notice given (if you miss delivering your notice to WeWork on the 1st of the month, you could be giving them nearly two months of rent/notice).
House Rules, page 5:
- Make certain that all your Members read and agree to abide by all of the House Rules.
- WeWork may disclose information about you/Members to satisfy “any applicable law, regulation, legal process or government request”.
- WeWork can video record your activities within WeWork — regularly.
- They can change the Rules at any time without notice.
Additional Agreements, page 6:
- Technology Release. WeWork can install software on your computers, but WeWork isn’t responsible for any damages for any reason whatsoever.
ATTORNEY FEEDBACK: For certain businesses, for example law firms or businesses that must protect its trade secrets, the Agreement creates several concerns, including the following:
- Under Section 1(d), WeWork retains the right to access the Member’s office without notice;
- Under Section 5(a), in order for Member to use WeWork’s computer network, it may be necessary for WeWork to install software onto a Member’s computer. What is that software, who owns or has the right to use or license the software is not disclosed.
- (b) Waiver of Claims. Injury to your firm, visitors or otherwise; damage, destruction, theft, loss of life….all at no risk whatsoever to WeWork.
- (c) WeWork’s extent of liability is equal to the total fees paid by your company.
- Your company has one year statute of limitations, according to WeWork, to file a lawsuit against them.
ATTORNEY FEEDBACK: The Agreement requires Member to indemnify WeWork for any claims or liabilities relating to or arising from any breach of the Agreement by Member or its guests or any actions or omissions of Member or its guests. The obligation to indemnify is not tied to who is required to maintain insurance and the Agreement contains no waiver of subrogation. Therefore, if Member’s employee accidentally leaves an empty coffee pot on a burner and it starts a fire that destroys the building, the Member (and Primary Member) will be liable for the loss. Obviously, this is not the desired result. The Member should carry property insurance on its personal property and liability insurance covering its space. WeWork should carry liability insurance covering the common areas of the building and property insurance. And the Agreement should contain the following provision:
“Waiver of Subrogation. Each of WeWork and Member hereby waives any right of recovery against the other and its respective partners, managers, members, shareholders, officers, directors and authorized representatives for any loss or damage that is covered by any policy of property insurance maintained by either party (or required by this Lease to be maintained) with respect to the space or the Building or any operation therein, regardless of cause, including negligence (active or passive) of the party benefiting from the waiver. If any such policy of insurance relating to this Agreement or to the Space or the Building does not permit the foregoing waiver or if the coverage under any such policy would be invalidated as a result of such waiver, then the party maintaining such policy shall obtain from the insurer under such policy a waiver of all right of recovery by way of subrogation against either party in connection with any claim, loss or damage covered by such policy.”
Miscellaneous, page 7
- Nature of the Agreement: This section describes all the things the Agreement IS NOT.
ATTORNEY FEEDBACK: What is the Membership Agreement? Is it a lease or is it a license agreement (or some other form of agreement)? This is an important question because a lease creates a possessory interest in the real property of the landlord while a license only confers a personal, revocable and generally non-assignable privilege to perform some act or acts upon the real property that is being licensed. A landlord may not use self-help to evict a tenant. In order to evict a tenant, a landlord must adhere to the unlawful detainer procedure contained in California Code of Civil Procedure Sections 1161 et. seq. A licensor does not have to follow the unlawful detainer procedure.
- (c) Governing Law: State of New York! Jurisdiction is a problem, especially if you need to pursue a legal action. California is known as the great consumer protectionist state.
- Your company irrevocably waives its right to a jury trial.
ATTORNEY FEEDBACK: The Agreement contains a choice of law provision applying New York law to any dispute between Member and WeWork and requires any lawsuit to be brought in and maintained in New York, obviously a poison pill for any local California company.
- Subordination: The Agreement is subordinate to WeWork’s lease with the landlord — to which your company is not privy. In all respects, however, your company must adhere to WeWork’s lease with the landlord.
- Extraordinary Events: Even if there’s an interruption of service (like an earthquake), rent is due!
- (g) If your company has disputes with any other Members at a WeWork facility, WeWork has no obligation or responsibility to lift a finger….in any way conceivable.
Broker Section (does not exist)
- Every lease and this Agreement should contain a Broker section which stipulates who the brokers were for each of the parties, if any; what fee is to be paid to such brokers, if any; and to clarify that WeWork is responsible for the payment of all such fees. A Broker section also contains a mutual waiver that protects each party from claims by any other brokers (other than those named in the Agreement).
Membership Details, page 8
- The Membership Fee, at $XX,000/month equals nearly $600/Member/month.
- Conference room and copier credits are located in this section.
Member List, page 8
- Additional capacity for Members, beyond the “Office Capacity” of XX: If I read this right, your company can pack more than XX people into the allocated space by simply paying $100/month/additional person.
- Background checks on Members: WeWork reserves the right to do this at any time, and in their sole discretion decline or terminate a Member on the basis of the results. The Agreement, which WeWork painstakingly explains is not a lease, is in the name of your firm. How is it lawful or constitutional for WeWork to run background checks on individual Members?
Dan Mihalovich is the founder and CEO of The Space Place, a San Francisco-based commercial tenant-representation firm.
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